The Community Reinvestment Act (CRA), enacted in 1977, is a key piece of legislation meant to ensure that underserved communities get equitable access to credit. In late October, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a final rule updating the regulations governing the CRA—the first such reform in over 25 years. While the new rule includes several welcome changes, it does not go far enough to remedy the racial disparities in credit access that have long persisted in the U.S. Namely, the final rule does not include an explicit focus on race. 

The goal of this bill is to encourage financial institutions to meet the credit needs of all communities in their service areas, including low- and moderate-income (LMI) communities. Essentially, regulators evaluate banks’ lending and other services to assess whether they adequately serve LMI borrowers and neighborhoods. The recent updates to the CRA are meant to strengthen the law and ensure it continues to meet its purpose amidst the significant changes that the banking industry has undergone in the past couple of decades. 

Several of the changes to the CRA are promising. For example, the new rule encourages banks to work with community development financial institutions (CDFIs) and minority depository institutions (MDIs), both of which historically have had closer ties to underserved borrowers. It emphasizes the importance of smaller loans, which can be more responsive to the needs of LMI communities. The rule also takes into account the growing role of online and mobile banking in evaluating banks’ performance. Finally, among other changes, the new regulations promote data transparency and encourage more engagement from the public. 

Even though the CRA was originally passed in an attempt to combat redlining—a practice under which banks refused to invest in low-income, majority-BIPOC (Black, Indigenous, and People of Color) neighborhoods—the law never considered race as a factor in evaluating banks’ performance. And racial disparities in accessing credit persist. For instance, Urban Institute research found that Black households in LMI neighborhoods were less likely to receive mortgage loans than other racial and ethnic groups. In terms of small business lending, the 2022 Small Business Credit Survey shows that firms owned by people of color were half as likely as White-owned firms to receive the financing they applied for in the previous year. 

As we outline in the comment letter that Prosperity Now submitted on the CRA, the law must explicitly evaluate banks’ performance based on factors that include race. The current practice of targeting LMI borrowers often leaves out many BIPOC borrowers, as research has shown that these two categories do not closely overlap. So, to truly make an effort to reduce racial disparities in lending, regulators must incorporate race and ethnicity in the CRA exams under which banks are evaluated. 

While we applaud the agencies’ efforts to modernize the CRA, the systemic inequities that communities of color have long faced are likely to continue if the law does not explicitly factor in race. Read our comment letter for more on what it will take to achieve racial equity in credit access.